The National Bank of Ethiopia (NBE) has issued an ultimatum to exporters who have failed to repatriate foreign exchange earnings from commodity trade. Analysts suggest that some exporters have employed various tactics to evade this requirement, driven by severe hard currency shortages, exchange rate fluctuations, and the misuse of the Cash Against Documents (CAD) payment system to facilitate capital flight.
During a high-level consultation on December 1st with exporters from the coffee, sesame, and pulses sectors, Governor Eyob Tekalegn highlighted ongoing issues with foreign currency repatriation.
The central bank emphasized that constructive engagement will precede enforcement, reaffirming its commitment to collaborating with the private sector to address challenges, improve regulatory compliance, and protect Ethiopia’s economic interests.
“The NBE remains committed to enforcing accountability, promoting ethical export practices, and strengthening the integrity of our foreign exchange regime,” stated a post-meeting announcement.
The bank also stressed the importance of safeguarding the nation’s foreign exchange reserves and ensuring the prompt and transparent return of export revenues.
Exporters and international trade specialists interviewed by Capital revealed that some established exporters are engaging in malpractice, while buyer defaults also require government intervention.
One exporter pointed to the instability of global trade, worsened by the U.S. administration’s fluctuating tariff policies. “Frequent tariff changes undermine buyers’ confidence in price stability, leading them to insist on strict timelines. Any shipment delay can result in defaults or demands for price renegotiation,” he explained, while also acknowledging exploitation by certain foreign entities.
Additionally, there was consensus among exporters and experts that the increasing reliance on the inherently risky CAD payment system, as opposed to the more secure Letter of Credit, is distorting the market.
“Inexperienced exporters are particularly vulnerable to this payment method,” noted one trade expert. “However, both new and established exporters are manipulating the CAD framework to illicitly transfer capital abroad.”
Experts further explained that some exporters are routing payments through foreign companies registered under the names of relatives. Motivations for this capital flight include domestic security concerns and the desire to evade outstanding loans from local financial institutions.
The newly enacted tax law, which imposes a minimum 2.5 percent revenue levy, has also been identified as a contributing factor.
“Given the typically low profitability and the large transaction volumes in exports, this tax significantly affects profit margins. As a result, many exporters prefer to conceal their earnings offshore rather than repatriate them,” a consultant disclosed.
He added that some exporters exploit a loophole in NBE regulations. “According to NBE law, exporters must repatriate foreign currency within three months, but they can request an additional three months if they justify the delay. They use this time to trade in foreign currency within the six-month window,” he noted.
Capital has learned that the central bank has issued a final ultimatum to transfer foreign currency within a short timeframe, although it has not disclosed the exact deadline.
It is worth noting that the government had initially facilitated the export of goods through CAD, but as of May 2024, exports to Somalia and Sudan, as well as to Egypt about seven months ago, now only proceed under Letter of Credit or advance payment schemes due to persistent defaults.
Experts indicate that it may be challenging for the government to take action against new exporters operating with shadow licenses that have no legitimate connection to their businesses.
